Westlife Development Vice Chairman Amit Jatia on Forging a Winning Partnership with McDonald’s in India

Amit Jatia, Vice Chairman of Westlife Development—which runs the McDonald’s outlets in the West and South of India—is an unlikely ‘Hamburgerologist’ (one who has a degree from the Hamburger University run by McDonald’s). Jatia, a vegetarian who hails from a north Indian business family, was happily running his family’s industrial chemicals business when he decided to enter the world of quick service restaurants (QSR) by partnering with McDonald’s. Today, he presides over a chain of 325 McDonald’s restaurants dishing out vegetarian and non-vegetarian fare. In an interaction with Business Today’s Global Business Editor Udayan Mukherjee, Jatia talks about how the global burger chain customised its menu for India, why vegetarianism is important for him, how he deals with inflation, and his expansion plans. Edited excerpts:

Q: The first thing which leaps out from your CV, Amit, is that you have a degree in something called Hamburgerology from an American university! I never knew such a thing existed. What on earth is Hamburgerology?

A: That is true, Udayan. Even I never knew before McDonald’s that there was something called Hamburgerology. Essentially, it’s a graduation degree from the world-famous Hamburger University that McDonald’s runs—at that time, in Oak Brook, Chicago. What it entails, quite surprisingly, is not so much the process of making burgers but also how to deal with people because that’s such an integral part of this business.

Goal setting, ensuring that there is profit in the business; it was an all-encompassing degree. I spent nine months at it before I could be called a qualified Hamburgerologist. So, it took nine months but it worked out quite fine and gave me a very broad understanding of the QSR business in totality.

Q: Coming from a business family in north India, with a well-entrenched chemicals business, the logical thing for you would have been to follow your father’s footsteps into the family business. From there to hamburgers, how did that happen?

A: Sure, it was completely by chance and coincidence. I never dreamt I would end up in the food business. After finishing my undergrad at the University of Southern California, I came back to India, very keen to get into manufacturing. Our family at that time, a joint family, had interests in paper, textiles, mining, and various other industries. I was put into the newly established industrial chemicals business, and ran that quite happily for a couple of years.

And then, one fine day, I happened to visit my dear friend Walter Saldanha, at that time the Managing Director of Chaitra Leo Burnett, as it was called then. After I had finished telling Walter, I want to do this, I want to do that with the family business, he turned around and said, ‘Amit forget all this. McDonald’s is looking for partners in India, would you be interested?’ I told him, ‘Walter, you must be out of your mind! I’m a vegetarian. And, here you are, telling me to sell beef burgers!’ He said, ‘No you’ve got to meet them. You know, they’re very flexible on their plans for the Indian menu.’ So, I went ahead and had the first meeting with them. Even in that first meeting, I was quite candid about the fact that I’m a vegetarian. And yet one thing led to the other and in a short span of nine months, my world changed; from selling industrial lubricants to Tata Steel and other large engineering companies, I had moved to selling burgers to a large base of consumers. Pure chance, that’s what it was.

Q: But, this vegetarian thing is not a trivial matter in a north Indian family. Didn’t you face any kind of pushback, because at the end of the day, the classic global McDonald’s product is a cheeseburger, made of beef. Couldn’t have been easy to push that through, right?

A: Luckily, no major objections, but right in my first meeting with McDonald’s, I was very transparent that I was not totally sure about this. I was not sure how my family would take it. And, therefore we had a number of meetings before which I finally confirmed. Before confirming, I spoke to my father several times just to convince him that not only was I not about to turn non-vegetarian myself, non-veg fare would come from a separate kitchen, where vegetarian sanctity is completely maintained. So please allow me to do that, I requested. Thankfully, there were cousins already in the hotel business and I used that as a handy example with my father. Finally, he agreed, and I must say that after all these years, as a family we don’t look back and regret it. I’m still a staunch vegetarian, that’s the good news. So, I have not been converted by McDonald’s yet.

Q: In India, McDonald’s has made several innovations, even Indianised the menu a lot. Doesn’t all this flow from the fact that you are a vegetarian and fundamentally believe that a meat-heavy menu line may not have that much success in India?

A: So, I do remember that the then CEO for McDonald’s International, Jim Cantalupo, came and met me here and asked me how my vegetarianism would fit into the overall scheme of things. I told him, ‘Hey I bring something to the table that pretty much none of you in the leadership team even understands. And, particularly in India that is very important—number one, in building the vegetarian menu; and number two, regarding the veg and non-veg integrity. I am so particular about vegetarianism that even if a spoon touches a non-veg gravy, I won’t eat out of that. And I was able to bring that rigour to the entire operational development of all our processes in the kitchen. That became a big value. [Also,] Aloo Tikki was our first local innovation.

This explains the comfort that we have even in Gujarat, for example, a very vegetarian market. We were always clear we will do both veg and non-veg but essentially when we entered Gujarat, we communicated the separate kitchens, did kitchen tours, and we convinced our customers that it is safe for them to eat there. I have to say that my understanding of vegetarianism at a leadership level really made that difference.

Q: It’s interesting to hear you say all this Amit, because some of your new launches include items like fried chicken, where you’re tasting some initial success, I am told.

A: Oh, absolutely! There is no myth in my mind that we are a food brand. By no means is this not a full-service restaurant business. My belief is that finally if I’ve chosen to be in this business, I have to serve all my customers.

For example, fried chicken is something we do very well in Asia; it’s not new to McDonald’s. So recently, one of the big things we discussed is that the chicken market in India, like in Southeast Asia, is an integral part of the eating-out segment. In south India alone, it’s an over `5,000-crore market, with a very strong leaning towards chicken. Having established the brand in the burger business, we now decided to take the next leap into fried chicken. A lot of work was done around it; visiting Indonesia, Malaysia, and other successful McDonald’s markets. We launched these products in April 2020, right around the start of Covid-19. Yet, it’s done extremely well for us, because we were able to put a differentiated product. So you will continuously see us innovate, not just on vegetarianism, but also on the non-vegetarian side. To me, it’s actually one menu, just serving the needs of both my diverse customers.

Q: Let me turn to something different. The world is taking a distinct tilt towards ESG—people are talking about organic foods, meat-free foods, the polluting effects of meat processing. What is the future of McDonald’s in such an ESG-focussed world because as a brand you’re often seen as the very antithesis of such a shift.

A: Maybe it’s about communication. So, our entire last annual report was built around the theme ‘less is more’. And, we have quietly been doing a lot of work around ESG. One initiative that I’m particularly proud of is where we took the used cooking oil from all our restaurants and converted that into biodiesel. So essentially all the trucks that run for delivery in Mumbai are all running on biodiesel, and in fact, the government appreciated that so much, that they asked if all restaurants can do that, imagine the amount of diesel that we would save as a country and its impact on ESG. Similarly, of course on the good food side, we have done a lot of work and another big example is the mark we have on all our packaging—only available and possible to use if we have all sustainable packaging. So, we are at it.

Q: This brings me to my next point, which is inflation. How bad is this variety of inflation we are facing right now? What does it mean for QSR chains like McDonald’s? Would you be able to pass down costs so easily, or would it make your pricing uncompetitive in the market?

A: So, you know Udayan, every time investors over the last 5-10 years have asked me the question about the biggest challenge for the business, I’ve always said inflation is one of them. We are living in an economy that is a high-inflation economy to start with. This time is bad but I can tell you a worse time and that was in 2013-14, when not only was inflation very high, but there was also a recession where GDP had dropped to about 4 per cent growth. Not only was cost going up but volumes were also impacted. My overall philosophy is that inflation is here to stay in some form or the other. And therefore, good companies have to take cost out every year as a part of the DNA. And the whole mantra in India, and that’s what I tell my leadership team, is to grow volumes and simultaneously cut costs. And, if you are able to grow volume and cut costs, that’s how the margin expansion will happen.

I think one of the most successful things that we’ve done, is to essentially grow our gross margins without really increasing menu prices. The idea is that even if we hike menu prices by 2-3 per cent a year, in a normal year, that should take care of cost increases. And, the cost take-out that we do from the business along with growth in volumes together should give us margin expansion. So for the last five years consistently, we’ve grown our Ebitda margin by 130 basis points. But because of this philosophy and thinking, in 2019, we decided that we need to take out about 400 basis points of costs by 2023. We involved [global consulting firm] A.T. Kearney [now known as Kearney] to help us relook at the business in totality. And because that work was ongoing when Covid-19 hit us, it put us on a very strong wicket to be able to quickly accelerate that programme and take costs out. So, I wouldn’t say that today is not a challenge. Today, I am seeing inflation, no doubt about it. But I’m also confident that we should be able to tackle it reasonably well.

Q: Has the business stabilised fully post-pandemic, Amit? And if you’re seeing volumes come back, is it primarily in the metros? Or are you actually seeing greater growth in Tier II cities like the Vellores and the Bhilais of the country?

A: Firstly, at least for now, demand is very strong. And, I am seeing a pretty good comeback across the board, whether it is West or South, whether it’s small towns or large towns. Maybe it is revenge spending or something else, but it’s working very well. People are going out and they are spending and at least at a McDonald’s level, we are able to capture a good part of it. So, it is across the board, Udayan.

Q: Where are you stepping up investments now? Is the thrust on expanding the store footprint in Tier II or Tier III cities, or is it tilted towards McCafé [a coffee-house style F&B chain owned by McDonald’s], which has been a success story for you?

A: Firstly, we use a lot of past data on how these 325 restaurants of ours in different mini-markets are working. Then we try to map what are the other trading areas where we are not present, and spot the gaps. The second big point is that I focussed very hard in the past. What I mean by that is if you look at the big traditional markets—in Mumbai, we have 100 restaurants and my closest burger competitor would be in the 20-30 restaurants range. As a result, we’ve ended up restricting ourselves to about 45 cities so far, while many of my competitors are in over 100 small cities.

So one of our big thrusts moving forward is, without losing the advantage we have in a Mumbai or Pune, how we can accelerate our growth in the smaller towns as well. We are seeing tremendous traction post-Covid-19 in these smaller towns, like the Bhilais and other markets you mentioned. So, in future, we may include Kolhapur or Indore or smaller markets in Gujarat, and we will start adding new cities with a more renewed vigour and focus. That’s how you will see us grow.

Additionally, we are also planning to open about 200-plus restaurants in the next three to five years, something that is more aggressive than what we’ve done before.

Q: You’ve done very well with the West and the South. But when one talks of the McDonald’s story in India one cannot separate the controversy which happened in the North and the East. The Vikram Bakshi episode lingers in the minds of people. How have you managed to stay out of any such controversy with your partner McDonald’s over the years?

A: I can speak only for myself. We’ve been a business family that had global relationships all the way from the 1970s. Right from the first acquisition that our family made with the Pudumjee Pulp & Paper Mills back in the day. And therefore, you know, we’ve had relationships with machine suppliers and global networks across our various companies. We know how to build bridges.

Having studied in the US and worked very closely with pretty much all cultures, there are two or three things that I learnt over time. First and foremost, when the partner is sitting far away, it’s all about trust and transparency; and, communication. So, you may have the first two but if there’s a lack of communication, it can still end up in a difficult situation. As a family, we’ve always believed that companies come first. Our philosophy has been to reinvest back in the business. And, when McDonald’s saw our attitude and approach and the fact that we were ready to maintain a very open line of communication, it laid the foundation for a really solid relationship. My philosophy is that sometimes wrong things do happen, but if it is communicated properly, and the context to that is explained, then the wrong can always be corrected. That has been our recipe of working successfully with global partners.